Clear signs emerged on Tuesday (9 February) that Germany and
other eurozone members are considering a bailout plan for Greece.

Reports suggest financial support is likely to come in the
form of guarantees or bilateral loans, with EU leaders set to discuss the exact
details when they meet for an informal summit on economic issues in Brussels on
Thursday.

German Finance Minister Wolfgang Sch�uble told officials in
Berlin on Monday that he had concluded there �was no alternative� to a rescue
plan, reports the Wall Street Journal citing an anonymous source.

The Financial Times quotes German officials as saying that
the steep decline in the euro and pressure on bond prices has forced Berlin to
�take a significant step� to deal with the Greek debt crisis.

Recent weeks have seen Greece come under tremendous pressure
from financial markets due to doubts over the Greek administration�s capacity to
push through tough austerity measures, leading to fears of a possible sovereign
default and contagion to other eurozone members.

Athens will face a major test on Wednesday with Greek public
sector workers set to strike over the government�s spending cut plans. The
protests are set to cause grounded flights, shut government offices and schools
and limited hospital operations.

Bailout method?

The European Investment Bank, the main provider of long-term
EU loans, ended all speculation on Tuesday that it might become involved in a
Greek bailout.

�The EIB�s mission and statute do not allow for bailouts in
terms of budget deficits or balance of payments support to individual
member-states,� Philippe Maystadt, the EIB president, said in a statement.

News that European Central Bank chief, Jean-Claude Trichet,
will be flying back from Australia for Thursday�s summit helped to lift markets
on Tuesday, although eurozone rules also prevent the central bank from bailing
out national governments.

Non-eurozone members Sweden and the UK have suggested that
the International Monetary Fund is best placed to supply financial support to
Greece, although EU officials have widely rejected this method.

�We don�t need to call in the IMF,� EU economic commissioner
Joaquin Almunia told the European parliament in Strasbourg on Tuesday.

Another option is the creation of a special bailout fund.
�When Europe was created, they created solidarity funds for new entrants, but
not for the euro members. This is what is needed now,� said economist Joseph
Stiglitz, currently advising the Greek government, on British television on
Tuesday evening.

A final decision on the plan may not come this week but
Germany is thought to favour guarantees as the most efficient way to prevent the
spread of the debt crisis.

Moral hazard

Whatever the final option, eurozone politicians will be keen
to avoid a situation of moral hazard whereby chronic overspenders like Greece
appear to be getting off easy.

Mr Almunia told MEPs he hoped leaders at Thursday�s summit
would offer �clear support� for Greece �in exchange for clear commitment [from
the Greek authorities] that they will meet their responsibilities. �You don�t
get support for free,� he stressed.

Taxpayers in Germany and other eurozone members involved in
the Greek rescue plan will essentially take on the risk involved in providing
Greece with guarantees or a large bilateral loan.

However, policy makers appear decided that the risks
associated with taking no action are far greater. As well as preventing a
possible default, a resolution to Greece�s problems would help calm investor
concerns over the health of public finances in Portugal and Spain.

German and French banks also have considerable exposure to
the Greek economy, including billions of euros in loans to private individuals
and companies.